Rich in Every Sense

Wednesday, April 5, 2017

I do not
see why we have to practice diversification in investment when we practice concentration
in other aspects of life.

When we
study in school, we major in one branch of study. If we are very smart, probably we can major
in two branches of study.

We do not
need to major in law, business, engineering and all other branches to succeed
in life.

When we
work, we work in one company at any given time, unless we cannot find a full
time job, then we are forced to take on 2 part time jobs.

When we get
married, we can only get married to a person.
We cannot have 2 or 3 spouses at the same time.

Diversification
in work and marriage will cause a lot of problems.

That is the
same approach when we invest our hard earned money.

We
focus. We must be very sure of the
performance of the company before we sink in our money.

If we are
wrong, the result is disastrous, but not as disastrous as getting married to
the wrong person.

An
investment portfolio can consist of more than one stock. That is the fortunate thing.

It is best
to have at most 5 stocks. No point
having more than that.

That is
like saying that 5 persons staying in a household – namely you, your spouse and
3 kids. You hardly have any spare time
when you have a full time job, and your family responsibility.

That is why
keep the concentrated portfolio to 5 companies.

The key is
to have the 5 companies in unrelated industries, and yet in industries that you
can understand.

You can get
1 company in retail, such as a supermarket operator. You can get 1 company in food and beverage
sector. Make sure that you like the food
enough to notice when the quality drops, and customers start leaving.

You can get
1 company in engineering or utility, and another in construction or property.

You can get
1 company in consumer products, such as the one that makes your shampoo and
shower cream.

It takes
time to build up a concentrated portfolio, and once you have it, you have to
pay attention to the changes taking place in real life before it takes place in
the stock market.

If you buy
into a food and beverage company because you love the coffee, and you
patronized the outlet every day, you would notice when the quality and service
drop.

If the quality
and service keep dropping, and even you, as the regular customer, starts to go
to its competitor, you must sell the stock.